I am in the investment advice industry and I'm not sure if I provide any value

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bucky6225
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I am in the investment advice industry and I'm not sure if I provide any value

Post by bucky6225 » Thu Sep 28, 2017 3:10 pm

I am a CFA charterholder, and I have been managing money for individuals for about ten years. I am a proponent of using a strategic allocation, and low cost well-diversified index funds. I like what I do, but even as a fiduciary I think charging 1% (the industry standard) for these services makes no sense. I really enjoy personal finance, building portfolios and investing. However, I hate telling people what I do. I feel like a fraud because I know that what I do is not really worth the price tag. The knowledge is out there for any smart person to figure out on their own.

My question to you all is if you see any benefit in using an advisor. If so, what would you pay? I realize the bogleheads forum is skewed more to the low cost do it yourself crowd, but that's why I'm asking. If there are enough people here that see some value in seeking professional advice, perhaps there is a place I can fit. If not, I have been pondering a career change for quite some time and this may confirm my desire to do something I fell better about.

aristotelian
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Re: I am in the investment advice industry and I'm not sure if I provide any value

Post by aristotelian » Thu Sep 28, 2017 3:17 pm

I think FA's could provide value for some people. Knowledge of tax strategies, withdrawal rate research etc. Teach them how to fish, so to speak. There is a lot more to personal finance than just picking index funds. Investing is the easy part.

I don't think it is possible to be worth a 1% AUM fee but nobody is forcing you to charge that much.

Why don't you shift to a fee-only model?
Last edited by aristotelian on Thu Sep 28, 2017 3:24 pm, edited 1 time in total.

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FelixTheCat
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Re: I am in the investment advice industry and I'm not sure if I provide any value

Post by FelixTheCat » Thu Sep 28, 2017 3:21 pm

A lot of people do not want to take the time to learn about finances. Be a Boglehead Financial Advisor. Teach your clients about the principals on this site. If they eventually want to learn about investing, tell them about BH and wish them well.
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barnaclebob
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Re: I am in the investment advice industry and I'm not sure if I provide any value

Post by barnaclebob » Thu Sep 28, 2017 3:24 pm

For people that never developed the right neural connections to control their spending, savings, and urge to gamble in the latest hot stocks, your fees are worth every penny.

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Re: I am in the investment advice industry and I'm not sure if I provide any value

Post by PugetSoundguy » Thu Sep 28, 2017 3:25 pm

I don't use an advisor because thanks to the information on this forum, I can see that it really isn't all that complicated and I can do it myself. Plus I enjoy it. But there are a lot of people who have no interest in doing it on their own. So long as they are getting good advice (like it sounds like you are giving) it could very well be worth 1% to folks who otherwise might be tricked into buying wildly expensive and inappropriate products, or who perhaps might not be saving enough and could use some education in that area as well. oops just saw that two posts made while I was writing this made essentially the same points more succinctly!!

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Re: I am in the investment advice industry and I'm not sure if I provide any value

Post by livesoft » Thu Sep 28, 2017 3:26 pm

Let me ask a question back at you first.

Can you answer the questions posed in threads such as this one ->
viewtopic.php?f=1&t=228057
with confidence, certainty, and correctness? Plus tell the questioner how much money you have saved them?
Last edited by livesoft on Thu Sep 28, 2017 3:27 pm, edited 1 time in total.
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Raybo
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Re: I am in the investment advice industry and I'm not sure if I provide any value

Post by Raybo » Thu Sep 28, 2017 3:27 pm

What your advice is worth is a function of what the outcome would be without the advice. In my experience, very few people have the desire or capacity to invest on their own, let alone, deal with structuring a portfolio based on need to take risk and to last all the way through retirement.

One question for you. Were you able to convince people to buy stocks in 2008 or, at least, stop them from selling at the bottom? If so, your AUM fee has been paid for many times over.

As for what you should charge, you could use an hourly model or one you make up. How about one that is hourly with a performance kicker? Are such things legal?
No matter how long the hill, if you keep pedaling you'll eventually get up to the top.

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Re: I am in the investment advice industry and I'm not sure if I provide any value

Post by CnC » Thu Sep 28, 2017 3:30 pm

bucky6225 wrote:
Thu Sep 28, 2017 3:10 pm

My question to you all is if you see any benefit in using an advisor. If so, what would you pay? I realize the bogleheads forum is skewed more to the low cost do it yourself crowd, but that's why I'm asking. If there are enough people here that see some value in seeking professional advice, perhaps there is a place I can fit. If not, I have been pondering a career change for quite some time and this may confirm my desire to do something I fell better about.
To the users on this form you probably hold little value.

But, there is a value there for the "common man" The average person just glazed over when you tell them about IRA's 401k's 457's Roth's, Tax Deferred, ECT.

I myself am an engineer that within the last year has begun indepth research into finance. You would not believe the amazement my coworkers have when I can list the pro's and cons of Various investments and I am still pretty young and new to this. Granted this advise is asked for not forced on people.

So, I can see a use for some people. Are you worth 1%? Perhaps if you helped out explaining capital gains tax effiency and backdoor Roth's to your customers. And helping people ride out storms and make sure they have the proper asset allocation means something.

I personally made the mistake of opening my wife and my own Roth IRA with an Edward Jones advisor and while I did drop him within the year, he paid for his outrageous fees by pointing out my wife had far too much company stock in ATT and recommended that we diversify it sooner rather than later. This was just before the stock dropped about 15%.


Please note, I an neither trying to be rude nor overly sensitive. So, please don't take offense.
Last edited by CnC on Thu Sep 28, 2017 3:33 pm, edited 1 time in total.

chicagoan23
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Re: I am in the investment advice industry and I'm not sure if I provide any value

Post by chicagoan23 » Thu Sep 28, 2017 3:31 pm

barnaclebob wrote:
Thu Sep 28, 2017 3:24 pm
For people that never developed the right neural connections to control their spending, savings, and urge to gamble in the latest hot stocks, your fees are worth every penny.
Agreed. Your advice seems sound, and you aren't steering people into terrible investment decisions. There is value in that. The knowledge is now out there to do just about any job, including that of a financial advisor, but many can't/won't. I could figure out how to fix my car if I really wanted to, but I'd rather pay a mechanic instead.

That said, I don't use an advisor and have no plans to. I enjoy managing money as well, and don't see a need for advisor services. But I know a lot of other people who would find it to be a valuable service.

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nedsaid
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Re: I am in the investment advice industry and I'm not sure if I provide any value

Post by nedsaid » Thu Sep 28, 2017 3:35 pm

bucky6225 wrote:
Thu Sep 28, 2017 3:10 pm
I am a CFA charterholder, and I have been managing money for individuals for about ten years. I am a proponent of using a strategic allocation, and low cost well-diversified index funds. I like what I do, but even as a fiduciary I think charging 1% (the industry standard) for these services makes no sense. I really enjoy personal finance, building portfolios and investing. However, I hate telling people what I do. I feel like a fraud because I know that what I do is not really worth the price tag. The knowledge is out there for any smart person to figure out on their own.

My question to you all is if you see any benefit in using an advisor. If so, what would you pay? I realize the bogleheads forum is skewed more to the low cost do it yourself crowd, but that's why I'm asking. If there are enough people here that see some value in seeking professional advice, perhaps there is a place I can fit. If not, I have been pondering a career change for quite some time and this may confirm my desire to do something I fell better about.
I have joked about Bogleheads being the equivalent of a confession both where I confess my investing sins. In your case, your "sins" seem to be more serious than mine. :wink:

You forget that Bogleheads are a pretty elite group. I think it was P.T. Barnum who said that no one went broke underestimating the intelligence of the American public. It never ceases to amaze me how many people are utterly clueless about personal finance much less investing. What seems elementary to you and me is incomprehensible rocket science to most Americans. I do taxes part time during the tax season and have tried to educate people about investing. Pretty much I get the "deer in the headlights" look. So I rarely do this anymore unless there is a genuine interest.

Don't feel bad about what you do. Even at a 1% annual fee, you are doing vastly better for your clients than what most would do on their own. If you are really skilled at something, it is easy for you, so easy that you feel guilty about charging for it. At least your clients are in relatively good hands, I shudder when I think of Ameriprise and Edward Jones.
A fool and his money are good for business.

afan
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Re: I am in the investment advice industry and I'm not sure if I provide any value

Post by afan » Thu Sep 28, 2017 3:47 pm

There is a fundamental problem with the assets under management fee model for financial advice. As the OP realizes, managing the assets is easy and every year Vanguard pushes the cost farther below 10 basis points for a total portfolio.

The rest of the fee has to be earned not on investment management but on financial advice. But advisors market themselves based on investment management and charge on this basis. It would make far more sense to charge for advice, like a lawyer. X dollars per hour or, perhaps, Y dollars for a complete financial plan and X dollars per hour for advice beyond that.

The problems for advisors for such a system are
1. They need a constant stream of new clients to generate the revenue they would otherwise get from AUM fees
2. It is very hard to charge a high enough hourly rate to match the revenue they would get from AUM fees.

A shame for them, but lawyers are in the same boat. Charging by the hour means always needing a way to fill the day with billable hours and there is a limit to what clients will pay for their advice. Some lawyers get around this with contingency fees, which can be much more lucrative than hourly.

For investment management, once the advisor and client have agreed on an overall asset allocation, there is nearly nothing for the investment manager to do. This means the effective hourly rate of an AUM deal is astronomical. The advisor is paid day in and day out for doing essentially nothing. Nice work if you can get it.

Some clients might actually need highly individualized investment plans, but I don't know whether they get them. Consider a client whose networth and income are tightly bound to one illiquid asset. Let's say the market value of the asset is quite volatile and it has a high correlation with its industry. That client needs the rest of her portfolio to have negative correlation with the illiquid asset and the overall volatility of her networth to be trimmed down. How many 1% advisors deliver custom portfolios that do that? They would be different if the business was the oil industry, food, autos, software... So the advisor could not pull down one diversified portfolio and use it for everyone. Say the advisor is also limited in the ability to recommend short positions against the company or industry. Perhaps for regulatory reasons, perhaps because the board would fire a senior executive who shorted the company stock.

How much would advice be worth? For the hypothetical client above, it might be worth 1% of assets to control the risk of that total portfolio. For the average working stiff without these complications, AUM just does not make sense. Since the advisor is doing essentially nothing, it makes sense to pay essentially nothing. One basis point? Certainly not more than 5.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

mega317
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Re: I am in the investment advice industry and I'm not sure if I provide any value

Post by mega317 » Thu Sep 28, 2017 3:50 pm

The knowledge is out there for any smart person to figure out on their own.
This is true about lots and lots of things. I could do all kinds of work on my house or car for which I don't currently have the knowledge (I hear good things about youtube in this arena), but I choose to pay an expert to do it rather than take the time to learn and then maybe screw it up.

I agree with the above posters who said 1% is easily worth it for many people. Think of all your clients who would have negative returns by moving in and out of stocks at the wrong times or staying in cash forever out of fear or disinterest.

This may not be of any comfort but your feeling is common in my profession, medicine, and I'm guessing every other one as well. Primary care physicians spend a huge portion of their time telling people to lose weight or exercise or stop smoking etc. But their value, and another source of your value, is in helping people with the HOW.

Edit to add an anecdote: I had a coworker who would constantly tell us about all the dumb things she was spending money on, while frequently joking about how her advisor would be so upset. On one hand, I feel for the advisor who probably thought s/he was wasting time with my coworker. On the other hand, something must be getting through for the coworker to mention the advisor so frequently. So you won't always see the impact you're making.

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Re: I am in the investment advice industry and I'm not sure if I provide any value

Post by Meg77 » Thu Sep 28, 2017 3:58 pm

I don't think there is a lot of value in hiring an investment manager, but there can be quite a bit of value in a financial planner/advisor. As for what I'd pay, I'd probably pay a flat fee for the construction of a comprehensive financial plan (they run $1,500 - $10,000 in my area) plus a $500 yearly annual retainer to have it updated. I didn't know that was a thing until I became a CFP, but there are more compensation models besides AUM in the business. Some folks charge by the hour like an attorney, for example.

Paying AUM fees makes sense for many people though, especially those with $250K or so under management. Remember that AUM fees are only charged on assets the advisor manages - not on 401ks, savings accounts, or other assets like business and real estate interests. A person with $250K - $500K to hand over to a manager may have a net worth of $2.5MM to $5MM. Paying $2500 - $5000 a year for unlimited access to a financial professional should not be not hard to swallow for those people. AUM starts to be crazy when you get into the 7-8 figure portfolio level, but then again it's often discounted heavily at that level.

That said, if all you are doing is selecting funds and assessing risk tolerance and establishing an asset allocation and trading securities or rebalancing - then your days are probably numbered. People are figuring out that a website or target date fund or any number of "robo-advisors" can do that for them for much less than it would cost a person to stay in business (without thousands of clients anyway). Many active mutual funds and managers will go out of business over the next decade I think - and all the analysts and staff along with them. The fees just aren't worth what you get compared to an index.

For the record, some studies have indicated that financial advisors ARE worth their (typical 1% fee), but not because they pick investments that outperform. The differentiator is purely behavioral. An advisor's real value, as has been measured so far, is effectively by acting as a middle man between the "sell" button and the client. A good one can talk clients off the ledge when they want to sell in a downturn, hold clients to an investment policy statement, convince and remind them to buy and hold and not listen to CNBC or their brother in law or the salesman at the free dinner. So if you have no interest in the behavioral elements of investments or in coaching and counseling (or if you have no talent in that arena), then it may not be the career field for you.

But the real test of whether you are adding value is whether customers are willing to pay you for your services. I may not see the value in a personal trainer, just as many Bogleheads can't imagine shelling out for a financial planner. But millions of people vote with their dollars every year and obviously think otherwise. There will always be people - the majority of affluent Americans possibly - who don't have the capacity or desire to manage their own finances, at least entirely. So you don't have to feel bad for charging others for something you think could be done without a professional. That kind of standard would wipe out many if not most jobs. But if you don't think you're adding value, then maybe you aren't. And I do think a change would be in order.
Last edited by Meg77 on Thu Sep 28, 2017 4:12 pm, edited 1 time in total.
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Re: I am in the investment advice industry and I'm not sure if I provide any value

Post by Christine_NM » Thu Sep 28, 2017 4:06 pm

Bucky -

Most professions seem easy ("not worth 1%") to the professional and yet the service is necessary for nonprofessionals. So we trade areas of expertise by buying and selling services from each other, from cleaning service to medical care. You've got to do something, and if the client is willing to pay rather than DIY, that's better than the client not investing.

Sometimes I shudder at what I pay an accountant to do my taxes, but sometimes she helps a little and I know I should not do it myself now even though I did it until 10 years ago. I can afford it and she does a better job than I would.

The odd bit of advice often makes a big difference in taxes and in investing.

I started with a full-service broker in the 70s and knew the commissions were eating me alive. Yet in 1979 the broker mentioned, you should have an IRA, which I had never heard of. I agreed immediately, and now I have $1m in IRAs basically from $2k/yr contributions plus 401(k). So the commissions were too much to buy and sell stock, but not too much to pay for awareness of what I should be doing.

My objection to advisers is only when they do not act as fiduciaries but simply look at the biggest commission and sell that product. At the end of the day, the client decides if you are worth it to him and if he can afford you.
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Re: I am in the investment advice industry and I'm not sure if I provide any value

Post by deltaneutral83 » Thu Sep 28, 2017 4:09 pm

Tax advice is key and sometimes worth 1%
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Re: I am in the investment advice industry and I'm not sure if I provide any value

Post by InvestoGuy » Thu Sep 28, 2017 4:13 pm

Simple answer: Yes there is value in having an ethical FP. There are so many folks out there who are clueless about the basics of investing, diversification, tax strategies, inheritance planning etc. that you can certainly provide value. How much do you charge, well that depends on the value you are able to give and the prevailing market conditions and how long you plan to be in this business.

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Re: I am in the investment advice industry and I'm not sure if I provide any value

Post by pkcrafter » Thu Sep 28, 2017 4:29 pm

bucky, there are only two kinds of investors--those that use advisors and those that self-manage. I know plenty of people who would never consider managing their own finances. I think the main reason is they are simply more comfortable with professional advice when it comes to money. They don't know anything about self-managing and they really don't want to know. I have several friends who proudly talk about what their wealth manager says, and of course they are pleased that they have a wealth manager and not "just" an advisor. Status symbol. I don't even comment, and none have ever asked about my fund manager.
bucky6225 wrote:
Thu Sep 28, 2017 3:10 pm
I am a CFA charterholder, and I have been managing money for individuals for about ten years. I am a proponent of using a strategic allocation, and low cost well-diversified index funds.

One of our most popular members here was Rick Ferri CFA, who openly provided a lot of help and information to members including a very good book. He also picked up a lot of clients too, but is now retired.
I like what I do, but even as a fiduciary I think charging 1% (the industry standard) for these services makes no sense. I really enjoy personal finance, building portfolios and investing. However, I hate telling people what I do. I feel like a fraud because I know that what I do is not really worth the price tag. The knowledge is out there for any smart person to figure out on their own.

Some people would not dream of self-managing something so important as retirement money, period. If you are using low cost index funds, you are in with Rick Ferri and you are offering a big advantage to your clients, although many may not even realize how much they are saving by using your methods.
My question to you all is if you see any benefit in using an advisor.

If the choice is between what you offer, index funds and strategic AA (buy and hold), and another advisor who is using high-cost active funds and tactical AA, then you are providing the best AUM service possible. In addition to that, some investors who manage their own portfolios make serious behavioral mistakes and don't achieve their potential returns, but they will probably continue to manage and make those mistakes. So, in addition to providing a good financial strategy, you might also be sure you offer behavioral/emotional education and support. Give clients a little extra to justify that 1%. You can also reduce the fee for larger accounts.

Bottom line there is a need for such service.

Final note: I hope your question is sincere and you are not here trying to advertise your services.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

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Re: I am in the investment advice industry and I'm not sure if I provide any value

Post by BogleWogle » Thu Sep 28, 2017 4:53 pm

+1 to Meg77's point on the value add as a buffer between an investor and their decision making.

I think we can all agree on the value of staying the course. A financial advisor that can both help establish that course and help a client STAY on that course is well worth the 1% AUM fee for many individuals. That doesn't mean everyone needs that level of handholding but I can assure you I know many that do.

I wouldn't doubt the level of value and service you provide your clients (assuming you're not churning accounts or putting them into high load funds :happy ) I would imagine if you are truly a boglehead and can invest your clients in accordance with that philosophy that there are much worse alternatives for your clients.

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Re: I am in the investment advice industry and I'm not sure if I provide any value

Post by lostdog » Thu Sep 28, 2017 4:53 pm

You're providing value to your clients by just getting them to invest. Most Americans don't invest so just getting them to invest is a huge feat. I tried to bring up the boglehead way to friends and all i got was deer in headlights looks or they don't have the time. I just keep it to myself from now on.
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Re: I am in the investment advice industry and I'm not sure if I provide any value

Post by stussy » Thu Sep 28, 2017 4:55 pm

As you observed, you're likely talking to a group who more than most can get by doing most of it themselves, or else with some limited help.

Looking at the investing habits of the average American seems to indicate that many could benefit from a good adviser. Many Bogleheads play this role for family members or friends; what about those who don't have a Boglehead in their circle, and don't know/care how to do it themselves?

Asset allocation, discipline, tax and estate advice, and self-control are all areas where you could add value. As people have already mentioned perhaps the flat 1% is a bit outdated (or at least under increasing pressure from the robo-advisers), but it seems to me like there's still an important role to play for many who don't spend their evenings pouring over Bogleheads posts. :happy

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Re: I am in the investment advice industry and I'm not sure if I provide any value

Post by GibsonL6s » Thu Sep 28, 2017 5:04 pm

Its like the old plumber joke the bill is $100, when asked to break it down. Tapping the pipe $1, knowing where to tap $99. Helping people develop their AA and stick to it is where the value is. If just having the assets under your watchful eye so they don't mess with these things happens, there is value. No different than the personal trainer. For those who do not have the discipline to work out regularly, this is also a good investment. The trainers are also using "off the shelf" ideas, but it is the mixing of the ideas and the discipline needed to stay the course that they sell.

I am sure you are providing lots of value and you should be proud of what you do!

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Re: I am in the investment advice industry and I'm not sure if I provide any value

Post by JBTX » Thu Sep 28, 2017 5:07 pm

Many mutual funds charge over 1.0%. If you are helping educate your clients on tax efficient strategies,asset allocations and other financial issues you are easily providing 1% worth of value. Assuming that the alternative that most would figure it out themselves is not realistic.

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Re: I am in the investment advice industry and I'm not sure if I provide any value

Post by Olemiss540 » Thu Sep 28, 2017 5:29 pm

bucky6225 wrote:
Thu Sep 28, 2017 3:10 pm
The knowledge is out there for any smart person to figure out on their own.
I think you answered the question on accident. I hate to be the one to have to tell you this, but dare I say, a lot of the people in this country do not fall into the category of "smart person".

Being a mechanic is tough, but there is a lot of things individuals could do easily themselves. Should mechanics feel bad for charging 85 bucks an hour for an oil change?
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.

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Re: I am in the investment advice industry and I'm not sure if I provide any value

Post by tfb » Thu Sep 28, 2017 6:09 pm

Don't conflate value with price. They are not the same thing.

You can provide a lot of value but you can still be vastly overpriced. Value belongs to the consumer.
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Re: I am in the investment advice industry and I'm not sure if I provide any value

Post by mhalley » Thu Sep 28, 2017 6:37 pm

You might find Vanguards white paper on advisor alpha interesting.
http://www.vanguard.com/pdf/ISGAA.pdf

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Re: I am in the investment advice industry and I'm not sure if I provide any value

Post by LarryAllen » Thu Sep 28, 2017 6:45 pm

I think you are underselling the value you likely provide to a lot of people.

First of all most people are NOT DIYers. Yes, most people on BH might be DIY but most people in the world want stuff done for them. You thus are providing a huge service even if all you are doing is investing them in 3 or 4 funds and "monitoring" it for them.

Second most people are not educated about how to allocate investments, tax implications, estate planning, etc.... You provide that for them.

Lastly you are the wise hand to keep them invested and not sell all at a time like 2008.

Don't let all the negativity on here, towards FAs, get you down. A lot of advisors charge 1.5% and more and sleep fine at night as far as I know. I know one guy that charges 2.5% for people invested in his special group of stock holdings. OUCH. At 1% you are a bargain!

I suggest you go to some training for FAs to give you a more positive attitude about what you do and how you do it.

It sounds like you are on the highly ethical side of life which is great! Do that and be above the fray.

Good luck to you!

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Re: I am in the investment advice industry and I'm not sure if I provide any value

Post by MotoTrojan » Thu Sep 28, 2017 9:08 pm

Sounds like you provide a similar service to Vanguards PAS? They charge 0.3% AUM, plus cost of Vanguard Funds. Somewhere between 0.3% and 1% seems reasonable for taking care of purchases/withdrawals, AA maintenance, and maybe a bigger yearly review, and quarterly phone/in-person tag-ups. AA management, tax-efficient fund placement, tax-advantaged accounts, tax loss harvesting, those are all services of value to many.

This crowd is not the one you are catering to.

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Re: I am in the investment advice industry and I'm not sure if I provide any value

Post by Grt2bOutdoors » Thu Sep 28, 2017 9:56 pm

1% is a small price to pay IF (caveat) you can protect them from seriously injuring their financial lives. One can not believe the damage a small mistake can create. As one mistake leads to another and another the damage is compounded until it becomes irreversible. The road is littered with those who took outsized risks and lost - Enron, Lucent Technologies, Worldcom, Eastman Kodak, Xerox, Avon, WaMu, Countrywide, Lehman, Bear Stearns! I have an acquaintance who had over $100K tied up in Bear Stearns equity, I advised them as a friend to liquidate the whole position which was held in a retirement account (no tax implications) and the response was it was going to go higher! :o :shock: :oops: A 1% fee would have cost $1,600 vs. the resulting carnage which was a severe decline in the equity price ending in a net realization of $2,000 upon selling the entire position. $98K up in smoke! That is an example of where value can be found. The fiduciary who prevents them from walking off the cliff with their eyes wide open.
Last edited by Grt2bOutdoors on Thu Sep 28, 2017 10:10 pm, edited 1 time in total.
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Re: I am in the investment advice industry and I'm not sure if I provide any value

Post by LadyGeek » Thu Sep 28, 2017 10:04 pm

This thread is now in the Personal Finance (Not Investing) forum (career guidance).
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Re: I am in the investment advice industry and I'm not sure if I provide any value

Post by jalbert » Thu Sep 28, 2017 10:24 pm

I feel like a fraud because I know that what I do is not really worth the price tag. The knowledge is out there for any smart person to figure out on their own.
I think if you inform the clients of products like Vanguard LifeStrategy and Target Retirement Funds (that cost 6 or 7 bp/yr above the ERs of the underlying funds if held as admiral shares or ETFs), and inform them of Vanguard Personal Advisor Services that charges 30 bp/yr, and then articulate the added value you are offering above these products to justify 100 bp/yr, then there is no reason to feel like a fraud. The clients can make an informed decision on what is best for them.

Have you considered matching Vanguard's 30 bp/yr for asset allocation and portfolio management services, and offering other planning services using a fee-for-service model?

Example: 30 bp/yr on AUM, $1000 for a comprehensive financial plan, $250 to update an existing financial plan, hourly rate for a scheduled consultation on esoteric topics not covered by the above.
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Re: I am in the investment advice industry and I'm not sure if I provide any value

Post by venkman » Thu Sep 28, 2017 11:32 pm

While it's better than the commission model, the AUM fee model still results in an inherent conflict of interest for the advisor--namely the fact that it is in the advisor's interest for you to keep all of your assets under the advisor's management. If you have a choice between, say, paying down a mortgage or leaving all your money invested, it may be in your best interest to pay down the mortgage. It will always be in your advisor's best interest for you to keep the money invested.

There's also the issue that the advisor has an incentive to make unnecessary trades (even if they're commission-free for the client), just to make it look like the advisor is adding value, even when doing nothing is usually the best strategy. The advisor also has an incentive to make the portfolio more complicated than it needs to be, so the client feels like they could never manage it on their own. A simple, buy-and-hold index fund portfolio is probably the best choice for many/most clients. An advisor who put all their clients into that kind of portfolio would inevitably lose some of those clients (no matter how well the portfolio performed), because the clients would figure out they don't need to pay the advisor 1%.

There is a huge amount of ignorance among the general public about investing and financial matters, and financial professionals can absolutely add a great deal of value. The problem is that many of those professionals are taking advantage of the public's ignorance, and only adding value for themselves.

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Re: I am in the investment advice industry and I'm not sure if I provide any value

Post by Watty » Thu Sep 28, 2017 11:43 pm

bucky6225 wrote:
Thu Sep 28, 2017 3:10 pm
My question to you all is if you see any benefit in using an advisor. If so, what would you pay? I realize the bogleheads forum is skewed more to the low cost do it yourself crowd, but that's why I'm asking. If there are enough people here that see some value in seeking professional advice, perhaps there is a place I can fit. If not, I have been pondering a career change for quite some time and this may confirm my desire to do something I fell better about.
One thing to ask yourself is if your clients would be better off if you changed careers.

I suspect that if you sent out a mass mailing to all your clients saying that you were retiring then the vast majority of them would just find a different and possibly less scrupulous advisor.

A lot of the value that you are providing is that your clients are not getting royally screwed like some of the stories you hear.
bucky6225 wrote:
Thu Sep 28, 2017 3:10 pm
The knowledge is out there for any smart person to figure out on their own.
Even if someone could do a good job on their own they may not feel comfortable with actually doing it on their own.

Figuring out just what is good information is not always obvious and they could choose a questionable source for their investing information, like Dave Ramsey or Suze Orman.

In comparison I am fairly handy with household repairs and I could probably do things like connect a natural gas appliance or do some electrical work that is more complicated than just changing a switch.

Even though I could do those things I still choose to pay someone to do that type of work just so that I can sleep well at night.

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Re: I am in the investment advice industry and I'm not sure if I provide any value

Post by QuietProsperity » Fri Sep 29, 2017 12:44 am

I work in the financial services industry as well and have had similar thoughts about the standard 1% model over the years, especially when I first started. I used to get more upset about it, but since helping out advisors and some clients over the past 4 years (I am more on the planning/service side...so I don't see those nice 1% revenues :| ) I can honestly say that for a lot of these people, the 1% is worth it. This is even more true when you take the "investments" out of the picture. One of the advisors I work with had a younger client open an individual 401k the other day (He is making solid $). That seems trivial to this board of course, but this person had no idea what "that" was and could easily have gone another 3-5 years without taking this step and forgone getting hundreds of thousands of dollars into a 401k this early in his life. The compound effect of that will be tremendous. Was it worth 1% every year? No. But I think if you took the 1% off every year versus the extra 3-5 years of getting ~$50,000 in a solo 401k, the early 401k start w/ a 1% fee would win out.

There are clearly some clients here at my firm who are over-paying at 1% given their knowledge (They just don't want to deal with it), but I would say that ~80% of the clients I have spoken with when discussing planning topics are getting an okay deal at 1%. As most people have mentioned, 1% for a well-thought out financial & investment plan and having someone to talk you off the "ledge of crazy ideas", is much better than most would do elsewhere or on their own.

Side notes:

1. It will depend on your firm, but if you are feeling this way, you don't HAVE to charge 1%. Rick Ferri built a tremendous firm on lower fees. There are also plenty of advisors out there who charge flat or hourly fees who are definitely charging the equivalent of less than 1% of assets.

2. My current thoughts of "ideal" compensation are two-fold. One-portion would be a consulting style method or project based-fees (similar to consultants or doctors). Complete financial and investment plan ... $A-B, Small Business Retirement Plan setup ... $Y-Z, etc. (Ranges based upon complexity). The second portion, and this would be optional to the client, would be to still offer investment management, but at a lower AUM price point ... something like 0.40% up $1mil, 0.30% 1-2mil, 0.20% 2-3mil, 0.10% 3mil+ or something.

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Re: I am in the investment advice industry and I'm not sure if I provide any value

Post by bucky6225 » Fri Sep 29, 2017 8:36 am

Thanks everyone. This is all such great feedback. It's clear that there is a place for professional financial advice. Sometimes hearing why what you do fills a need is an important reminder that there is value there.

A little more background for everyone. I am not actually an advisor. I have worked for a couple of RIAs with significant assets AUM, so there's a whole team in place (the advisor, operations, investment professionals etc). As a CFA, I am focused on the investment side of things (managing the accounts, building customized portfolios which take into account tax implications across account types, conducting research and creating client facing pieces etc).

Where I struggle is how much advice should cost. I see many in the industry charge the typical 1% fee, and offer little more than asset allocation and rebalancing. For a client with $1 million that is $10,000 a year in fees! In my opinion, this is unbelievably overpriced. Even if you are providing behavioral coaching that saves the client from making stupid mistakes.

I think the model for a successful investment firm going forward will have to include the following:

1. Offer holistic financial advice - In addition to investment advice, offer financial planning. If you just offer investment planning, the roboadvisors are much cheaper and frankly will do a better job over time.

2. A fee structure that is tailored to the services that are given. For example, if you just need investment planning, offer pricing similar to the robo advisors (perhaps a premium is warranted if they want a human to talk to), and an hourly fee for anything above simple investment planning. For financial planning that only needs to be created once, offer a one time price (depending on the hours required and complexity of the client's situation). For someone that wants to completely turn everything over, offer retainer fee for $xxx per year.

I think the % of assets under management makes little sense. Take two clients, one with $1mil and one with $3mil. Assuming they each have the same level of complexity, you are essentially doing the same amount of work for both clients, but one is getting charged almost 3x the amount as the other (assume the fee is lowered at each successive tier).

I think what I need to do to stay relevant is earn the CFP, and become much more of an expert in the financial planning side of things. Then I think I will be in a position to offer holistic advice at a fee that is reasonable. Thanks again to everyone for all the feedback, this is extremely helpful.

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Re: I am in the investment advice industry and I'm not sure if I provide any value

Post by dbr » Fri Sep 29, 2017 8:46 am

bucky6225 wrote:
Thu Sep 28, 2017 3:10 pm
I am a CFA charterholder, and I have been managing money for individuals for about ten years. I am a proponent of using a strategic allocation, and low cost well-diversified index funds. I like what I do, but even as a fiduciary I think charging 1% (the industry standard) for these services makes no sense. I really enjoy personal finance, building portfolios and investing. However, I hate telling people what I do. I feel like a fraud because I know that what I do is not really worth the price tag. The knowledge is out there for any smart person to figure out on their own.

My question to you all is if you see any benefit in using an advisor. If so, what would you pay? I realize the bogleheads forum is skewed more to the low cost do it yourself crowd, but that's why I'm asking. If there are enough people here that see some value in seeking professional advice, perhaps there is a place I can fit. If not, I have been pondering a career change for quite some time and this may confirm my desire to do something I fell better about.
My generalization about this issue is that investors can't afford to pay what advisors need to earn. That means that people who can't somehow figure out what to do without paying for it are screwed.

An important distinction is that planning can be performed on a one time task basis for a reasonable cost to formulate a financial plan and perhaps after some time to review and update. I am pretty sure you can't make a business of doing this.

Another distinction is that investment management is not the same thing as advice and planning. There are people who need investments managed for them because they can't or don't want to pay attention to what is going on and take care of things on a month to month basis. I don't know what it should cost to do this, but it has to be much less than 1% AUM or the cost is prohibitive.

Also, while you are an exception, there has to be extreme reluctance to suggest to anyone that they seek financial advice as the chances of getting anything from incompetent advice to being taken advantage of to becoming a victim of outright fraud are too high to justify taking the chance.

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Re: I am in the investment advice industry and I'm not sure if I provide any value

Post by Texanbybirth » Fri Sep 29, 2017 8:56 am

bucky6225 wrote:
Fri Sep 29, 2017 8:36 am

1. Offer holistic financial advice - In addition to investment advice, offer financial planning. If you just offer investment planning, the roboadvisors are much cheaper and frankly will do a better job over time.
Yes, this is where the industry is heavily trending, especially for younger investors but also for everyone else. Traditional RIA houses will be in a bad way in 10 years.
bucky6225 wrote:
Fri Sep 29, 2017 8:36 am

2. A fee structure that is tailored to the services that are given. For example, if you just need investment planning, offer pricing similar to the robo advisors (perhaps a premium is warranted if they want a human to talk to), and an hourly fee for anything above simple investment planning. For financial planning that only needs to be created once, offer a one time price (depending on the hours required and complexity of the client's situation). For someone that wants to completely turn everything over, offer retainer fee for $xxx per year.
I'd be interested in seeing this fleshed out a little more, but I agree that the strict AUM*mgmt_fee% model isn't going to be the best one going forward.

I think a CFP is a good bet for you, as you've got the quant side down. You've also seemingly got a good conscience telling you to possibly make a move. I'd not discount that as a businessman going forward.

This has been a great read, best of luck!

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Re: I am in the investment advice industry and I'm not sure if I provide any value

Post by carolinaman » Fri Sep 29, 2017 9:22 am

Bogleheads are DIY and atypical of all investors. There are many people who need an adviser although most on this website are DIYers. The following Vanguard article illustrates the potential value. Disclaimer: I do not agree with 3%, but the article illustrates areas where an adviser can help:

http://www.cambridgewealthcounsel.com/w ... visors.pdf

I think the greatest need is for adviser's that can provide comprehensive financial advice, including investments, but much more. Tax strategy, withdrawal strategy, retirement planning, etc. Fee only advisers are touted as the best approach, but from what I hear, that is a difficult business model if you exclude AUM. I see posts from people on this site everyday who could benefit from comprehensive retirement planning by a good, honest adviser.

I applaud your honesty and sincerity and encourage you to find a niche within the industry to serve. We need people like you as advisers.

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Re: I am in the investment advice industry and I'm not sure if I provide any value

Post by afan » Fri Sep 29, 2017 9:31 am

[quote=dbr post_id=3552467 time=1506692800 user_id=825]
An important distinction is that planning can be performed on a one time task basis for a reasonable cost to formulate a financial plan and perhaps after some time to review and update. I am pretty sure you can't make a business of doing this.
[/quote]

Well, maybe. There are some financial planners who sell advice, but not investment management. As I understand it, they will recommend an investment approach, if they are good the approach is likely to be along the lines described by the OP. But they do not do AUM or commission-based services. It can be done.

Is it a good side of the industry to enter? I suspect it may not be. The real money in the financial planning business right now is in AUM fees and commissions. But as many have noted, that is changing as more investors go it alone, use robos and buy no load index funds. The future for those high price investment managers may be as bleak as it is for active managers. This is probably not a part of the industry to enter.

It sounds strange to me for someone with a CFA to be planning to get a CFP, which I view as intellectually a much lower credential.
Consider that most bogleheads can do for themselves whatever a CFP could offer them. But few bogleheads would be able to pass the CFA exams.

There are plenty of things a financial analyst can do that are useful and that cannot be replicated cheaply by robos and index funds. Most of this work has nothing at all to do with guiding individual investors. Institutional money managers have to buy and sell bonds and they need someone to determine the prices. They need to lend and borrow money and they need to set rates. Companies need to analyze the credit worthiness of counterparties. Someone needs to do that.

For internal accounting purposes and financial reporting it is necessary to estimate the value of future anticipated cash flows. The knowledge of how to do that remains valuable no matter what happens with the narrow sliver of the financial industry that offers advice to individual clients.

The primary value the CFA brings to individual investment management would be creating the sorts of highly customized portfolios I alluded above, for the small minority of investors who need them.
While it is hypothetically possible for a firm to offer than sort of customized investment management, I don't know whether any actually do it. It would be labor intensive and the whole goal in AUM management is to minimize the amount of individualized work so the operation can scale.

But "I am a CFA and I want to get a CFP" sounds to me like a hundred years ago saying "I am an auto mechanic and I want to learn to make wagon wheels and buggy whips."
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Re: I am in the investment advice industry and I'm not sure if I provide any value

Post by afan » Fri Sep 29, 2017 9:36 am

I am skeptical, to say the least, of claims that advisors help clients avoid bad investment moves in overreaction to the news. It is easy to say that, but there is precious little evidence it is true. I am aware of one large study from Europe that managed to compare portfolios run by advisors to those held at the same bank but without advisors. The advisors were no better than the DIY portfolios.

Before I would pay anything for an advisor I would want some evidence that using one is better than doing without. Right now I don't know of any evidence. Sure, there are anecdotes of one advisor who claims to have talked clients out of bad maneuvers. But systematic data are hard to come by.

Maybe someone given to impulsive overreaction to things needs a psychologist rather than a financial advisor...
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

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Re: I am in the investment advice industry and I'm not sure if I provide any value

Post by BHUser27 » Fri Sep 29, 2017 9:48 am

I can only answer OP from my personal perspective...
Background: I am a DIY investor, Boglehead and have (almost) zero education in financial management/investment, etc.

After speaking with several FAs and even paying a fixed-fee for a retirement plan under fiduciary contract, I have come to realize I would *never* hire a financial/investment adviser under an AUM based contract.
The AUM model makes *no* sense to me.
Assume I have a portfolio of $1mm in investable assets. What am I getting for my $10k/yr?
If my portfolio grows to $3mm why am I paying you $20k *more* for the same service?

I *might* consider paying a fixed fee for one-off consultation and advice on nuanced topics such as TLH, portfolio review, etc, but in my personal experience, these conversations are never straight forward and I leave feeling like the FA is trying to make everything seem confusing and difficult to push me toward their AUM services.

I really have to spin the question back to OP. If you do not feel you are offering services that justify the cost and AUM model, then tell me what value you feel you *can* bring to my financial situation, and tell me what you think that value is worth and why?

I think you are struggling with the fact that it is going to be difficult making a living charging fees appropriate for the (minimal, difficult to articulate) value you actually know you can bring to a given client.
Last edited by BHUser27 on Fri Sep 29, 2017 3:08 pm, edited 1 time in total.

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Re: I am in the investment advice industry and I'm not sure if I provide any value

Post by dbr » Fri Sep 29, 2017 9:53 am

afan wrote:
Fri Sep 29, 2017 9:36 am
I am skeptical, to say the least, of claims that advisors help clients avoid bad investment moves in overreaction to the news. It is easy to say that, but there is precious little evidence it is true. I am aware of one large study from Europe that managed to compare portfolios run by advisors to those held at the same bank but without advisors. The advisors were no better than the DIY portfolios.

Before I would pay anything for an advisor I would want some evidence that using one is better than doing without. Right now I don't know of any evidence. Sure, there are anecdotes of one advisor who claims to have talked clients out of bad maneuvers. But systematic data are hard to come by.

Maybe someone given to impulsive overreaction to things needs a psychologist rather than a financial advisor...
It is entirely possible for advisors to tell clients to do the worst things rather than the best. In particular advisors can be market timers or engage in other ill-advised schemes. Advisors can tell clients to bail during market downturns because they don't want unhappy clients who see their assets dwindling away. Advisors can be terrible at correctly educating clients regarding risk as selling people on the promise of riches pays better than scaring people out of the market.

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Re: I am in the investment advice industry and I'm not sure if I provide any value

Post by White Coat Investor » Fri Sep 29, 2017 10:07 am

bucky6225 wrote:
Thu Sep 28, 2017 3:10 pm
I am a CFA charterholder, and I have been managing money for individuals for about ten years. I am a proponent of using a strategic allocation, and low cost well-diversified index funds. I like what I do, but even as a fiduciary I think charging 1% (the industry standard) for these services makes no sense. I really enjoy personal finance, building portfolios and investing. However, I hate telling people what I do. I feel like a fraud because I know that what I do is not really worth the price tag. The knowledge is out there for any smart person to figure out on their own.

My question to you all is if you see any benefit in using an advisor. If so, what would you pay? I realize the bogleheads forum is skewed more to the low cost do it yourself crowd, but that's why I'm asking. If there are enough people here that see some value in seeking professional advice, perhaps there is a place I can fit. If not, I have been pondering a career change for quite some time and this may confirm my desire to do something I fell better about.
Absolutely there's value there, but I think a much fairer model is hourly rate of $200-400 for financial planning and annual flat fee of $1-10K for investment management. Rates like that would let you earn like a professional like a doc or lawyer, but wouldn't allow you to make $5M a year like many advisors can do by charging AUM fees and gathering a lot of assets.
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Re: I am in the investment advice industry and I'm not sure if I provide any value

Post by tfb » Fri Sep 29, 2017 10:20 am

QuietProsperity wrote:
Fri Sep 29, 2017 12:44 am
As most people have mentioned, 1% for a well-thought out financial & investment plan and having someone to talk you off the "ledge of crazy ideas", is much better than most would do elsewhere or on their own.
This is simply faulty logic permeated by the advice industry, a false dichotomy. It's like a restaurant saying if you don't eat here you will starve to death. Whether 1% is much better than most would do on their own is moot when the customers can just go somewhere else for much less.
BHUser27 wrote:
Fri Sep 29, 2017 9:48 am
I *might* consider paying a fixed fee for one-off consultation and advice on nuanced topics such as TLH, portfolio review, etc, but in my personal experience, these conversations are never straight forward and I leave feeling like the FA is trying to make everything seem confusing and difficult to push me toward their AUM services.
You need to find advisors who don't manage money at all. So there won't be any pushing.
Harry Sit, taking a break from the forums.

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Re: I am in the investment advice industry and I'm not sure if I provide any value

Post by goingup » Fri Sep 29, 2017 10:26 am

bucky6225 wrote:
Thu Sep 28, 2017 3:10 pm
However, I hate telling people what I do.
That's unfortunate! That's where the true value of an advisor lies. If people had the knowledge, confidence and discipline to do it themselves they wouldn't need an advisor.

William Bernstein riled up this forum several years ago by stating in "The Investor's Manifesto" that most investors need an advisor. Something to the effect that an investor needed robust math skills and a knowledge of financial history in order to be successful. All that coupled with steely discipline and bloodless reactions to turbulent markets. Short of possessing these skills, an investor better advisor-up. However, he noted that most advisors are akin to common criminals. What's an investor to do? Interesting book but I found the messages confusing.

I think you can add value if you:
*Help investors set a course of regular saving
*Determine roughly their risk tolerance
*Prevent them from tinkering
*Remind them of long-term goals during market turbulence
*Set up accounts to be tax efficient
*Use low-cost mutual funds and ETFs
*Don't sell them insurance or annuities they don't need
*Don't churn their account to please your manager
*Don't sell them proprietary products they can't divest from
*Don't tell them to skip workplace contributing so there's more for you to work with

Good luck. Lots of us have gone through periods of self-reflection, wondering if our work was important or really even needed.

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Re: I am in the investment advice industry and I'm not sure if I provide any value

Post by QuietProsperity » Fri Sep 29, 2017 11:19 am

tfb wrote:
Fri Sep 29, 2017 10:20 am
This is simply faulty logic permeated by the advice industry, a false dichotomy. It's like a restaurant saying if you don't eat here you will starve to death. Whether 1% is much better than most would do on their own is moot when the customers can just go somewhere else for much less.
I have in the past, and will continue to say that 1% is not worth it given today's alternatives...If you know about the alternatives...maybe someone could help people with that (For a small fee :happy ). I think flat-fees, project-based fees, hourly fees and smaller AUM fees (Like Rick Ferri's old firm ~0.40% or less) are clearly better alternatives given equal levels of knowledge and advice between advisors.

The challenge is, when thinking about how much value a good financial advisor CAN bring to someones life, 1. How do you quantify that? 2. How do you charge for it? Advisors have and will obviously continue to choose the most lucrative model (1% AUM) for themselves. It will be up to the consumers of financial advice to change that...which I think they will in our lifetimes.

A very solid financial plan coupled with an IPS could help an individual or family earn hundreds of thousands of dollars above what they might have on their own. Obviously, this could all be done within the first year of work with an advisor and after that, there are only minor upgrades year to year. How do you charge for that?

I think eventually, similar to consultants/doctors, a project-based fee will win out in regards to financial planning work and investment management will continue to follow AUM fees but at a much lower cost. So, excluding Bogleheads and DIY's, clients will pay Vanguard or Betterment or an advisor something like 0.25% on assets for investment management. They will then employ financial planners for one-off large services like life-planning work, financial plan-work, setting up company retirement plans, etc. and then use some sort of hourly fee/small retainer fee for plan up-keep after the initial larger project fee.

tfb wrote:
Fri Sep 29, 2017 10:20 am
You need to find advisors who don't manage money at all. So there won't be any pushing.
As much as I agree with your first comment above. I think this is flat-wrong. I think the investment plan should be married with the financial plan. An advisor can manage money on a discretionary basis under a flat-fee arrangement. It doesn't have to be AUM and thus will avoid a lot of the potential conflicts with AUM (Cash balances, debt pay-down, account types and locations, etc.).

P.S. There are conflicts with every fee structure out there. Nothing is perfect, including flat-fee, hourly-fee, etc. I wholly think that some fee arraignments have worse conflicts compared to others AUM v. Hourly let's say, but they all have them.

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Re: I am in the investment advice industry and I'm not sure if I provide any value

Post by rkuklinski » Fri Sep 29, 2017 12:40 pm

OP - I empathize with your struggle. I am a CFP that reached the same crossroads as you have and chose to leave the industry. In my position I worked for a well-known house on this forum that offers portfolios of actively-managed portfolios rather than low cost index funds.
bucky6225 wrote:
Fri Sep 29, 2017 8:36 am
I think what I need to do to stay relevant is earn the CFP, and become much more of an expert in the financial planning side of things. Then I think I will be in a position to offer holistic advice at a fee that is reasonable. Thanks again to everyone for all the feedback, this is extremely helpful.
Bingo

Your transition to the sell-side will be eye-opening to say the least. The questions often posed on this forum on TLH, Roth conversion strategies, maximizing social security benefits, backdoor roth contributions, NUA, etc are complicated questions that advisors all too often are ill-equipped to give competent answers.

The advisor that not only delves into these topics as needed but acts as a quarterback with a tax advisor and estate attorney can provide enormous benefits that extend beyond investment performance. Good luck!
'Who controls the past' ran the Party slogan, 'controls the future: who controls the present controls the past.'"

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Re: I am in the investment advice industry and I'm not sure if I provide any value

Post by tfb » Fri Sep 29, 2017 1:01 pm

QuietProsperity wrote:
Fri Sep 29, 2017 11:19 am
tfb wrote:
Fri Sep 29, 2017 10:20 am
You need to find advisors who don't manage money at all. So there won't be any pushing.
As much as I agree with your first comment above. I think this is flat-wrong. I think the investment plan should be married with the financial plan. An advisor can manage money on a discretionary basis under a flat-fee arrangement. It doesn't have to be AUM and thus will avoid a lot of the potential conflicts with AUM (Cash balances, debt pay-down, account types and locations, etc.).
How so? Coming up with an investment plan does not require the advisor to manage money. It will still be married with the financial plan. Advisors who don't manage money at all can and do provide investment plans. Customers just follow the plan and put in the trades themselves through the online interface or customer service reps at their custodian.
Harry Sit, taking a break from the forums.

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djpeteski
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Re: I am in the investment advice industry and I'm not sure if I provide any value

Post by djpeteski » Fri Sep 29, 2017 1:23 pm

My mom has a FA adviser, despite being mostly in income funds that she does not touch. He only manages a very small part of her portfolio. She lives off her pension(s).

She probably calls once a month asking for more yield with less risk. :annoyed

She calls at least 3 times, once a year, on what to do with her RMDs. :annoyed

For the RMDs the answer is it does not matter. Give it away, invest it tax free, take it to the horse track, buy her self something nice, spend it on the grandkids, whatever. It is such a small part of her income and net worth it simply doesn't matter. I tell her the same thing every year. Actually I ask her what she wants to do with it, and then tell her to do that.

I should probably supplement his pay as when she calls him she is not calling me.

QuietProsperity
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Re: I am in the investment advice industry and I'm not sure if I provide any value

Post by QuietProsperity » Fri Sep 29, 2017 1:48 pm

tfb wrote:
Fri Sep 29, 2017 1:01 pm
QuietProsperity wrote:
Fri Sep 29, 2017 11:19 am
tfb wrote:
Fri Sep 29, 2017 10:20 am
You need to find advisors who don't manage money at all. So there won't be any pushing.
As much as I agree with your first comment above. I think this is flat-wrong. I think the investment plan should be married with the financial plan. An advisor can manage money on a discretionary basis under a flat-fee arrangement. It doesn't have to be AUM and thus will avoid a lot of the potential conflicts with AUM (Cash balances, debt pay-down, account types and locations, etc.).
How so? Coming up with an investment plan does not require the advisor to manage money. It will still be married with the financial plan. Advisors who don't manage money at all can and do provide investment plans. Customers just follow the plan and put in the trades themselves through the online interface or customer service reps at their custodian.
Fair enough on furthering the definition, but personally, I do not have a problem if an advisor has discretion over a clients portfolio if he/she included that service as part of a low-cost annual flat-fee or a low cost AUM fee a la Betterment/Vanguard.

I think I worry a bit about giving a lot of people full control over their investment accounts. I know someone could implement a portfolio from an advisor easily. You are 100% right on that.

My question is, what happens three years down the road when greed/fear/boredom come up? Clearly your optimism in relation to most peoples behavioral control via investment decisions is higher than mine. I have seen/heard/read about too many poor investment decisions from people "who should know better" to fully believe that a high majority of people could stick to a strategic globally diversified portfolio for decades.

I guess your rebuttal would be that these people could call-up that advisor again before making any changes to the portfolio, but my gut tells me most would not. They would make a decision based on emotions from some tip at a cocktail party or news item or whatever.

I wish I was wrong, but so far, outside of the boglehead/personal finance blog sphere (Individuals like yourself), I rarely meet individuals who I believe have the knowledge and behavioral traits to accomplish the above on their own. Just my imo.

We tend to believe that people can know/learn/do what we do. Clearly you have the knowledge and temperament for investing. I have read your blog for awhile and know this (I own your TIPS book as well, and it's great...no I didn't get paid to say that), but is it possible that a majority of investors are not like you, your readers, or the people that frequent sites like yours/the bogleheads forum?

Lastly, the above does not mean advisors and others like yourself should "give-up" on educating people and encouraging more DIY practices. I just think we are further off than you believe and until that time occurs (hopefully not too far off), there is nothing wrong with fair and reasonable (i.e. low) fees for investment management imo. From my personal experiences, paying someone 0.25% for an emotional fail-safe of sorts is probably worth it for most people.

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Re: I am in the investment advice industry and I'm not sure if I provide any value

Post by bloom2708 » Fri Sep 29, 2017 2:00 pm

A friend is an EJ advisor. He is one of the nicest people you will ever meet. Before "the awakening" I moved some money to him. We were there for under 3 years. It was an eye opener on many levels.

When I told him I was going to Vanguard and after I've thought of how he feels about the exact question the OP asks. If I can see and feel the conflict, it has to be there for him (and others).

He did all the things that benefited him more and me some. Suggested the higher ER fund over the lower. Suggested the fund with the front end sales load over the fund without. Put me in the Advisory series with 1.35% fee. He always recommended a new fund instead of buying a fund I already had. I ended up with an expensive/messy/overlapping portfolio. It even included some individual stocks which is a head scratcher because those purchases didn't leave anything to skim off of or generate much of a fee.

If I was in his shoes, I'd think about it from the "I have to provide for me and my family first". He is/was doing what would put food on the table and money in his investment accounts.

Can someone be nice, trustworthy, driven, calm and put themselves first? Absolutely. Does he help people invest who wouldn't invest at all? Probably. Does he help people invest MORE than they would without his advice? Likely.

The hardest part is that it can be so simple. 2 or 3 funds. Buy more of what you own. Re-balance once a year. Keep fees low. By doing that over 20, 30, 40 years, you can end up with $300k, $400k more. That is not peanuts.

I think the OP is asking a good question. This internal struggle would gnaw at me. It's just 1%. Just a 5.75% load. Just one more fund. Just a 2.1% Expense Ratio.

Personally I couldn't do it, but you do have to realize that the vast majority don't think like this, understand to any level beyond the surface or want to know. That would be the people to help. If their eyes open up, let them go. Encourage them to go DIY.
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead

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